CRA Bank Deposit Analysis Audits: Why CRA Treats Your Deposits as Income — Cash Apps, E-Transfers, Transfers, Gifts, and Loan Deposits Explained (Montreal CPA Firm Guide)

A Bank Deposit Analysis Audit is one of the fastest and harshest tools CRA uses to reassess taxpayers in Quebec.
CRA simply adds up every deposit—e-transfers, cheques, cash, platform payouts, loan transfers, family support, and even credit card balance transfers—and assumes they are unreported taxable income unless you prove otherwise.
This audit method routinely produces large reassessments, inflated income, denied expenses, and immediate collections enforcement such as refund seizures, garnishments, and account freezes.

This guide explains why CRA uses bank deposit analysis, how they interpret your transactions, and what Mackisen does to defend you against this aggressive audit technique.

Legal and Regulatory Framework

Under the Income Tax Act, CRA is authorized to:
• perform indirect audit methods when books and records are inaccurate
• use bank deposits as evidence of income
• assume deposits are taxable unless proven otherwise
• assess based on cash flow, transfers, and personal spending
• reassess multiple years
• charge penalties and interest
• begin collections immediately

CRA does not need exact evidence—assumptions are permitted when the taxpayer cannot explain deposits.

Key Court Decisions

Courts in Canada consistently uphold CRA’s right to use bank deposit analysis. Core principles include:
• deposits are presumed taxable
• taxpayers must disprove CRA’s assumptions
• transfers between accounts must be documented
• loans must be supported by written agreements
• gifts must be proven with evidence
• business and personal accounts may both be reviewed
• CRA can use deposits even if bookkeeping exists
• courts accept indirect methods when records are weak

The burden of proof is entirely on the taxpayer.

Why CRA Uses Bank Deposit Analysis Audits

CRA applies this method when certain red flags appear:
• inconsistent income reporting
• high volume of e-transfers
• cash deposits without invoices
• deposits from multiple unknown sources
• platform income from Uber, DoorDash, Etsy, Amazon, or Stripe
• undeclared rental or real estate income
• self-employed workers with minimal bookkeeping
• joint account activity
• family members depositing money into your account
• transfers mistaken for income
• undocumented loans or reimbursements
• foreign deposits

Quebec taxpayers face even more scrutiny due to RQ–CRA data sharing.

How CRA Performs a Bank Deposit Audit (Deep Expansion)

1. Gathering Banking Evidence

CRA requests:
• all bank statements
• credit card statements
• e-transfer histories
• PayPal, Stripe, Shopify records
• loan statements
• mortgage documents
• accounting ledgers
• copies of cheques
• deposit slips

CRA may also obtain bank data directly from financial institutions.

2. Summarizing All Deposits

CRA totals:
• cash deposits
• cheque deposits
• e-transfers
• platform payouts
• ATM deposits
• wire transfers
• foreign deposits
• transfers from other accounts

Every dollar is counted unless explained.

3. Categorizing Deposits as Taxable or Non-Taxable

CRA assigns deposits to categories:
• business income (taxable)
• rental income (taxable)
• employment income (taxable)
• capital gains (taxable if undocumented)
• shareholder benefits (taxable)
• return of capital (non-taxable if proven)
• loans (non-taxable if proven)
• gifts (non-taxable if proven)
• inter-account transfers (non-taxable if proven)

The default assumption is taxable.

4. Removing Only Deposits You Can Prove

CRA will not accept verbal explanations.
You must provide:
• bank-to-bank matching statements
• loan agreements
• gift letters
• proof of origin
• corporate resolutions
• intercompany transaction schedules
• accounting entries
• proof of sale documents

If you cannot prove it, CRA treats it as income.

5. Producing a Reassessment

CRA reassesses based on the difference between taxable deposits and reported income.

6. Enforcement Begins

CRA may immediately:
• freeze accounts
• seize refunds
• garnish wages
• garnishee client payments
• register liens
• escalate to multi-year audits

Bank deposit audits almost always trigger aggressive collections.

Immediate Financial Risks

Bank deposit audits can lead to:
• large “phantom income” tax bills
• multi-year interest charges
• gross negligence penalties
• cash flow collapse
• GST/QST reassessments
• denial of ITCs
• wage garnishments
• frozen bank accounts
• liens on personal property
• blocked refinancing
• CRA monitoring of future filings

This audit type is one of the most financially damaging.

Mackisen Strategy

Bank deposit audits require forensic reconstruction. Mackisen CPA uses a structured defence method:

Step 1 — Full Deposit Reconstruction

We examine and categorize:
• all deposits
• transfers
• gift receipts
• loan agreements
• repayment schedules
• corporate transactions
• real estate proceeds
• business vs personal deposits
• duplicate deposits
• linked account transfers
• reimbursements

We rebuild a proper financial model to counter CRA’s assumptions.

Step 2 — Identify Legitimate Non-Taxable Transactions

We document:
• shareholder loans
• family gifts
• loan proceeds
• reimbursements
• joint account transfers
• refunds and rebates
• insurance payouts
• intercompany transfers
• personal savings used as deposits
• transfers from spouse or relatives

These can dramatically reduce CRA’s “phantom income.”

Step 3 — Build Evidence Packages

We prepare:
• deposit matching spreadsheets
• annotated bank statements
• loan agreements
• gift letters
• business revenue schedules
• proof of origin documentation

This forces CRA to reconsider the audit assumptions.

Step 4 — File Objections

We challenge the reassessment with:
• legal arguments
• documentation
• adjusted calculations
• case law references

Mackisen handles the full appeal.

Step 5 — Stop Collections

We negotiate:
• freeze lifts
• refund releases
• garnishment holds
• payment plans
• enforcement pauses

This protects cash flow while the dispute continues.

Step 6 — Long-Term Protection

We set up:
• proper bookkeeping
• structured banking
• deposit tracking
• GST/QST alignment
• controlled personal/business separation

This prevents future deposit audits.

Real Client Experience

A Montreal construction worker was audited after CRA saw large e-transfers. CRA assumed $84,000 of “unreported income.” Mackisen proved that most deposits were transfers, reimbursements, and family support. The assessment dropped from $84,000 to $3,900.

Another client, an e-commerce seller, had Stripe and PayPal deposits treated as full taxable income, even though many were refunds. Mackisen reconstructed the full transaction history and reduced the reassessment by over 70 percent.

Common Questions

• Does CRA assume deposits are income? Yes.
• Can CRA audit personal accounts? Yes.
• Are transfers between accounts taxable? Not if proven.
• Are gifts taxable? No, but CRA requires proof.
• Are loans taxable? No, but they must be documented.
• Can CRA freeze my bank account after a deposit audit? Yes.
• Can CRA reassess multiple years? Yes.
• Can this audit be reversed? Yes, with strong documentation.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you’re filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency, and protection from audit risk.